The Central Bank of Nigeria (CBN) has made a significant move to strengthen the Naira by prohibiting the use of Foreign Currency-denominated collaterals for Naira loans by all Nigerian banks. This decision, outlined in a letter to commercial banks signed by Director of the Banking Supervision Department, Adetona Adedeji, aims to address the prevalent practice of using foreign currency as collateral for Naira loans.
In a bid to uphold financial stability, the CBN has specified exceptions to this new guideline, allowing for the use of Eurobonds issued by the Federal Government of Nigeria and Guarantees of foreign banks, including Standby Letters of Credit. However, all loans currently secured with dollar-denominated collaterals, other than the mentioned exceptions, must be wound down within 90 days.
Failure to comply with this directive will result in such exposures being risk-weighted at 150 per cent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions. This move comes amidst the implementation of minimum capital requirements for all banks, demonstrating the CBN’s commitment to safeguarding the Naira and Nigeria’s economy.
Governor of the CBN, Olayemi Cardoso, has been proactive in rolling out policies to protect the Naira and bolster the country’s economic resilience. This latest directive underscores the central bank’s efforts to maintain financial integrity and promote sustainable growth in Nigeria.
